Unfortunately for income investors, the interest rates on offer with term deposits are barely keeping up with inflation at present.
In light of this, I would consider replacing your term deposit with dividend shares that offer vastly superior yields and potential capital gains.
But which dividend shares should you buy? I think the quality dividend shares listed below would be good options. Here's why I like them:
Commonwealth Bank of Australia (ASX: CBA)
The first dividend share to consider buying is Australia's largest bank, Commonwealth Bank. Although the bank will almost certainly cut its dividend this year, I believe both this and the impact of the coronavirus pandemic on the banking sector have been factored into its share price. In light of this, I feel now could be an opportune time to snap up its shares while they are trading at such low levels. I expect Commonwealth Bank to pay a dividend of ~$3.70 in FY 2021, which equates to a forward fully franked ~6% dividend yield.
Dicker Data Ltd (ASX: DDR)
Another dividend share to consider buying is Dicker Data. It is a wholesale distributor of computer hardware and software products throughout Australia. Dicker Data has been a very strong performer over the last few years and I'm optimistic this positive form has continued even during the pandemic. Management certainly appears confident in its prospects judging by the high levels of insider buying of its shares recently. I estimate that its shares offer a forward fully franked 4.7% dividend yield.
Wesfarmers Ltd (ASX: WES)
A final option to consider is Wesfarmers. I think it would be a good option for income investors due to the quality and diversity of its portfolio and its solid long term growth prospects. Another positive is that Wesfarmers appears well-placed for growth during the pandemic. This is thanks largely to its key Bunnings business which has been experiencing strong demand from consumers as they use their spare time to undertake home improvements. Its shares currently offer an estimated forward fully franked 4% dividend yield.
